State and local officials can hear the death rattle of low-interest mortgage programs that have made it possible for thousands of Chicago-area residents to become first-time home buyers.
The programs, which have been administered in the Chicago area by the city, Cook County and the state, rely on tax-exempt government bonds. Federal tax-reform proposals favored by the Reagan Administration and passed by the House Ways and Means Committee would severely curtail the bonding authority of state and local governments for mortgage subsidies.
”This could be the last go-around for the program,” said David Bice, an economic development specialist for Cook County. ”It doesn`t look very good.”
In September, the county sold slightly more than $84 million in bonds for the mortgage program, yielding nearly $75 million for 9.99 percent, 30-year fixed-rate mortgages, according to county controller Thomas P. Beck. Nearly 1,100 loans averaging $55,000 have been approved.
Under the Ways and Means Committee tax proprosal, Bice estimates the county could, at best, issue only about $3 million in bonds for the program.
”Really, with $3 million, you can`t do anything,” Bice said.
Woody Mosgers, manager of public affairs for the Illinois Housing Development Authority, said of the tax bill approved by the House committee:
”It`s really going to be debilitating. You either run a much smaller program or you don`t have one at all.”
Under the state`s current $275 million low-interest mortgage program, nearly 6,000 residents have been approved for 9.8 percent loans since it began in November.
”Some 6,000 new home owners in a few months is not bad at all,” Mosgers said. ”Now there are a lot of `ifs` to it.”
In Chicago, Nedra Sims, deputy commissioner of housing rehabilitation, said: ”It looks like we would be put out of business. It`s a shame; the consumers lose.”
She said the program not only served to provide lower interest mortgages, but also may have spurred conventional lenders to keep their mortgage rates lower than if the government programs did not exist.
During 1985, the city committed $97 million for the loan program, with about 75 percent going to single-family home buyers. A total of 1,700 loans were made under the program, Sims said.
This year`s allocation is $118 million, expected to cover about 2,200 loans at 9.68 percent interest.
Attorney Ray Sales of the Loop law firm of Chapman & Cutler, Cook County`s bond counsel, said the dire predictions stem from the Ways and Means Committee`s proposal to lump housing bonds and a host of other government bond issues into the same category as industrial revenue bonds. Governmental units operate currently with a cap of $150 per resident for industrial revenue bonds, but the other issues either had no cap or the caps were so high that there was no practical limit.
Sales said the proposed legislation would create a combined cap of $175 per resident, but it also would cover bonds issued for such diverse purposes as housing, hospital construction and student loans in addition to industrial development.
”Obviously, by adding those categories to the pot, there`s going to be less to go around,” Sales said.
Illinois` Mosgers said the effect would be to place a total limit on
”private purpose tax-exempt bonds” for all governmental units in Illinois at about $680 million. Last year, the state alone issued $580 million of those type of bonds.
”It would certainly restrict us,” Mosgers said.
Doug Guthrie, another deputy Chicago housing commissioner, said uncertainty over federal action on tax reform has ”shut down” the municipal bond market. ”Basically, no municipal bonds are being sold,” he said.
The legislation passed by the House Ways and Means Committee contains a retroactive effective date to Jan. 1, 1986, Guthrie said. Although both chambers of Congress have passed resolutions urging an effective date of Jan. 1, 1987, those resolutions are not binding, and Guthrie said the uncertainty lingers.
He said the tax proposal would allow the city to issue up to $75 million for its mortgage program, already down from the $118 million this year. But even all or part of that $75 million could be allocated to other purposes, he said.
”In reality, we`re all tossed into one big pot,” Guthrie said. ”We`re all competing against what, in effect, are unknown priorities.”
Added Deputy Commissioner Sims: ”If we have to compete against capital improvements, such as the O`Hare expansion or rapid transit improvements, there`s no way in the world the mayor is going to forego infrastructure projects that are so important to the city.
”I`ve seen three or four scenarios,” she said. ”In any event, it (the mortgage program) would be greatly reduced.”
Despite the bleak outlook, both the city and the county said they still have money left this year for mortgage subsidies. And Mosgers said the state soon will be announcing the availability of $50 million for mortgages in
”targeted” low- to moderate-income areas, which includes most of Chicago. He also said the state will probably have more money available for other areas after a ”shakeout” of applications that have covered the currently available funds.
In Cook County, controller Beck said more than $7 million will become available in early March when money that had been reserved for specific municipalities becomes available for general use. The money had been restricted for six months for use in cities that had ceded their bonding authority to the county for the mortgage program, but the end of the six-month period is approaching.
In Chicago, applications have been received for only about $5 million of the $118 million available, Sims said. The city has just begun processing applications, she said.
And although the state is ”technically oversubscribed” for its general mortgage funds, Mosgers said he expects some to be freed after loans are finalized. He said many buyers apply for identical loans at several institutions in hopes of improving their chances of receiving approval, and those multi-applications all have been counted in the total.
In all cases, the mortgages are available with 5 percent down payment at a guaranteed fixed rate for 30 years. The loans are made by participating financial institutions.
Families with annual incomes of up to nearly $55,000 are eligible.
Additional information on participating institutions or the programs is available by calling these phone numbers: Chicago, 922-8275 or 435-6214; Cook County, 443-4893; and Illinois, 800-942-8439.
